Monday, March 15, 2010

The New Dark Age

There is no one date that can be identified as to when Rome fell and the Dark Ages began. Alaric and the Visigoths sacked Rome in 410 and Geiseric and the Vandals sacked it in 455, but it wasn't until hundreds of years later that the Gauls, ruled by the conquering Franks, realized that they were no longer speaking Latin but rather a new language derived from Latin. Eastern Rome or Constantinople did not fall to Sultan Mehmed and the Ottomans until 1455. Whatever date you choose to assign, there was a period of several hundred years during late antiquity when literacy rates were lower than previously, population had been decimated because of a series of plagues between the sixth and eighth centuries and few records were kept. I would argue that this decline was necessary for the rebirth of European civilization that occurred in the Renaissance, the Enlightenment and in Europe's most backward quarter at the time, Great Britain, from the 1500s to 1800s.

Compared to the period from 1776 to 1971, we have entered into an incipient dark age. The dark age is not necessarily identifiable through declines in literacy, although recent studies announced in the newspapers indicate that students' achievement has been in the decline. Nor do I predict the outbreak of plagues, although there have been such predictions. Rather, excessive monetary creation and the new money's transfer to Wall Street and real estate interests have slowed wage growth and innovation. We are in a dark age compared to where we would have been without the Federal Reserve Bank , the current monetary system and income taxes.

In other words, the Federal Reserve Bank's control of the money supply has displaced technological and market innovation with financial and real estate speculation and government. Until Richard M. Nixon finally abolished the gold standard in 1971 the real hourly wage grew at 2% per year. Since then, the real hourly wage has not grown at all. The difference between the wage profiles with compounded 2% annual growth and 0% annual growth over 40 years is around 100%. American workers today are earning 1/2 of what they would have been earning had the gold standard been in place and savings and investment resources allocated efficiently.

No one can know what the economy would have looked like in the absence of the Fed and the income tax, but there is no question that there would have been considerably more rapid and more extensive rates of innovation, just as there had been in the late 19th and early 20th centuries before the Fed was established. There would be less opportunity to work in low-paying retail jobs and less stock market appreciation. But there would have been opportunities to work in technologies that are unknown to us and unknowable because the individuals who would have otherwise invented the technologies became stock traders or lawyers instead of inventors. Likely there would be cures to diseases that are today unknown, methods of transportation that are unknown and conveniences that are unknown. Compared to where we would have been without the Fed, we are living in a dark age.

The Dark Ages perpetuated the Roman class system, replacing Roman Emperors, Senators and Equestrians with barbarian tribal chieftains like Clovis as kings and various feudal titles like earl, duke and count. In the American case, the Fed creates a three-class system: those with early access to Fed reserves, to include the banking system, the military-industrial complex, Wall Street and government; a middle class that mostly works in the military-industrial complex with some access to Fed reserves; and a lumpen proletariat without much access, about a third of the population. The three-class system replaces the egalitarian democracy of laissez faire capitalism, which was characterized by fast paced competition and more fluid class structures than today.

The new dark age is perpetuated by the creation of gilds or interest groups that resist change. Public employee unions demand the privileges to which they have become accustomed, as do their "betters" on Wall Street. The lowest extreme of the lumpen proletariat is content with section 8 housing, welfare and Medicaid, and the right not to work.

The new system is not yet so stable as the manorial and feudalist system of the earlier Dark Ages. The trifurcation of society will see stagnant living standards that may eventually decline. Medical innovation and then the standards of health care will be reduced, along with declines in the quality of diet, resulting in stagnant or perhaps increasing rates of mortality.

America's state-controlled media will attribute stagnation and decline to capitalism or to foreigners. They will protect the aristocrats of Wall Street, the military-industrial complex and government at all costs.

It remains unclear whether American wages will continue along the current stagnant path of the past 40 years or will begin to decline as the nation's economy becomes less important on the global scene. In order to regain a growth position (in real wages) there will need to be considerable upheaval in the American economy. It seems most likely that the wealth transfers to Wall Street, the military industrial complex and government will not abate unless there is an overt crisis.

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Mitchell Langbert

About Me

I have researched and written about employee benefit issues and in my previous life was a corporate benefits administrator. I am currently associate professor of business at Brooklyn College. I hold a Ph.D. from the Columbia University Graduate School of Business, an MBA from UCLA and an AB from Sarah Lawrence College. I am working on a project involving public policy. I blog on academic and political topics.